No. 167: Accounting Fraud and Individual Financial Health

We examine the impact of accounting fraud on spatially exposed individuals, including peripheral stakeholders of fraudulent firms. Using a consumer credit panel, we find significant increases in financial distress—measured by debt in collection, credit card delinquencies, and consumer bankruptcies—upon fraud revelation. Post-revelation contagion and pre-revelation positive news explain the impact of fraud on individuals’ financial health. Finally, we reveal that misinformed financial decisions before fraud revelation increase individuals’ financial distress after revelation. Overall, our results not only demonstrate fraud’s detrimental impact on local financial health but also carry important implications for fraud enforcement.